Why can't GDP be 1%; and still have a happy society?
Long term trends and habits in the large and broad scale of an economy are set into "stone", eh?
Can not a society exist in a form of contenment without having to maintain a GDP above 1% or unemployment below 5%?
Central banks and politicians seem to operate in this special world of want and need.
Inflation or deflation. One finds either of these in the natural world of economics. Natural in this case, is the supply and demand of the consuming public; without intervention of a central bank or other outside policy or politician(s).
After the economic melt in 2008/2009 it would be expected that some natural effects could be known. Used car prices moved upward for a decent vehicle and new car sales took a hit. Auto related company values traveled in directions that made sense. Ford stock went to the poop zone for awhile, and Autozone started its upward stock value path. Pretty straight forward stuff, eh?
'Course, the investors (gamblers) at this house know that outside forces are always trying to help maintain a "healthy society" with monetary policy and related; so we attempt to invest accordingly and take advantage of the trends; be they true or false, short lived or not.
We continue to live in a most perverted economic climate; that will continue to be pulled in various directions from central banks and politicians; attempting to make life good for one and all, trying to market the fact of spend to the general consumer.
Federal Reserve's Objectives with Monetary PolicyWell, do your best to maintain; from whatever your perspective.
Regards,
Catch
Comments
As attractive as it might seem, a real (after inflation is subtracted from the number) 1% US real GDP growth rate is simply not enough.
It's barely sufficient to maintain our current standard of living given that our population growth rate averages about 1% annually.
Although I examined this issue about a decade ago, major momentum of a battleship size economy like ours is hard to change and harder to control. Historically, over the past several decades, U.S. real GDP growth rate has bounced around a 3% annual increase. More recently, it has hovered more like a disappointing 2% level.
The two factors that contribute most to GDP are population growth and productivity enhancements. Roughly, 1% is tied to population increase and 1% to 2% is coupled to productivity improvements. A 1% total growth really translates into a stagnant GDP per person statistic.
I prefer this real GDP per capita as a more meaningful measure of our economic health status. A 1% rate is just not good enough; we're better than that. Let's target a minimum and conservative 3% real GDP growth rate to promote everyone's better living. It's doable.
The distribution of that growth is a challenging issue given the growing gap between the wealthy and the poor segments of our population. With a very low Real GDP growth rate, the poor will surely remain poor. That's yet another problem, but it is solvable.
Best Regards.
http://krugman.blogs.nytimes.com/2011/10/30/a-volcker-moment-indeed-slightly-wonkish/
http://www.businessinsider.com/goldman-janet-yellen-has-endorsed-ngdplt-in-all-but-name-2013-1
http://www.themoneyillusion.com/?p=14684
http://www.themoneyillusion.com/?p=26771
http://www.economist.com/blogs/freeexchange/2011/11/case-against-case-nominal-gdp-target
Desperate times call for repackaging.
Thank you for the many references. However, I am a bit disappointed since the bulk of them linked to Paul Krugman's interpretation of Keynesian government intervention economics.
I was mostly disappointed because the references did not include much base rate statistics nor did they present a balance between competing Keynesian and Austrian economic perspectives. In many applications, a melding of the best concepts from both economic schools yield the most likely success policy.
Also, Krugman is a pure, fully committed Keynesian. He is more Keynesian than Keynes himself is. Krugman never compromises; Keynes often did. It is said that Keynes famously infuriated fellow economists with his rapid turnarounds on important matters.
I prefer references that are data rich from primary sources. Although he is not my favorite economist, Ed Yardeni provides terrific historical economic graphs. Here is a Link that shows actual GDP data (not real GDP) starting in 1960. Inflation adjustments must be made relative to my comments. Here is the Link:
http://www.yardeni.com/pub/ppphb.pdf
Enjoy these colorful plots. Yardeni posts a host of these informative historical data displays. They put economic data in an historical context.
Best Wishes.
However, you may generalize about (and indeed dislike as many do) Krugman as you wish and attempt to view him merely as a preacher of arguable viewpoints --- except that he is by far, by far, the most data-driven economist writing. Since you want data from primary sources, simply look at all of his FRED graphs and FRED data-mining. There is no 'balance' with Austrians; nobody serious or informed believes that. There is no melding of policies when including that camp. Krugman is glad to turn around; show him the data. He gets shot at a ton, more than anyone else, rightly or wrongly, but I have never seen him overturned with substantive data-based argument, historical or other. I hold no brief for the guy or any personal connection or indeed have formal training in economics, but I know triumph in the marketplace of ideas when I see it. A lot of people don't like him for some reason or other. Seeming moral superiority or some such? (Who cares?) I don't know what financial intellectual discourse would be like today with unchallenged ongoing faith-based beliefs in confidence fairies, sado-austerity, supply-side creationism, inequality promotion, tax decreases = prosperity, market-ruling ideologies, inflation-mongering, blah blah. We can all be like Kansas!
Yardeni is a moron if (since) he believes for example that debt absolute, without regard to GDP, is an actual problem:
\\\ That’s what we are doing to our children. Krugman and Williams are endorsing the Theft of Generations. Perhaps Mitt Romney was right after all: The next President of the United States should be Paul Ryan.
Yard has long held other equally empty beliefs; it is easy to check him out for what he is.
The debt thing, and the cutting unemployment thing, and all his other advocacies, are laughable nonsense. Theft of generation, huh. It is our kids who will paying for social upheaval, infrastructure fixes, rising waters, and all the other crap that actually is, at the moment, not all that hard to remedy for keeps.
http://krugman.blogs.nytimes.com/
And there is excellent new stuff tonight, but just scroll down for the last few weeks, or more.
Progressive only if you don't know that reality has a liberal bias.
http://www.econlib.org/library/Columns/y2006/Friedmantranscript.html
http://www.bloomberg.com/news/2013-08-09/was-milton-friedman-wrong-about-everything-.html
And this is more nuanced:
\\\ ...the bigger issue, I’d argue, is that modern conservatives can’t accept the things Friedman was right about. Take, in particular, his essay on flexible exchange rates, in which he argued that a country that finds its wages and prices out of line should devalue its currency rather than rely on unemployment to push wages down, “until the deflation has run its sorry course.” Contrast this with [Paul] Ryan’s declaration that “There is nothing more insidious that a country can do to its citizens than debase its currency.”
\\\ The point is that Friedman was, when all is said and done, a pragmatist; he leaned right ideologically, but was willing to make room for awkward realities.
from
http://krugman.blogs.nytimes.com/2013/08/09/more-on-the-disappearance-of-milton-friedman/
False equivalence/balance is never enlightening.
Thank you for your nice and necessary submittals. We learn most from a diversity of opinions that are hard data based.
Economics is not anywhere near a closed science. Controversy rules. Yes, Paul Krugman is controversial, but so are just about all economists. All are burdened with both a right and wrong forecasting record. Krugman is no exception. Just ask Harvard historical economist Niall Ferguson. Perhaps it's a battle between Harvard and Princeton economists? Some suspect that if you put two economists in a room, you will leave that room with three policy opinions.
Please understand that I neither like nor dislike Krugman. I value his analyses, but I also seek other predictions. Basically, I'm agnostic with respect to religion, to party politics, and to economic schools. All offer concepts that work sometimes and fail sometimes. All share imperfect scores because they are dependent upon specific circumstances that never exactly repeat.
I share many of your views with regard to Ed Yardeni; he carries a scorecard of many prediction errors. I merely referenced his useful historical graphs, and not his interpretations of the data.
I fear we have wandered far from the theme of Catch22's original post. Are we satisfied with a US economy that generates a 1% annual real GDP growth rate? Let's focus on that question.
I'm not satisfied. We have and can do much better regardless of who is in political power or what a Nobel economist projects. I'm always reminded of Phil Tetlock's enormous longitudinal surveys that find that experts are little better than a fair coin toss when making forecasts.
I hope the. US can re establish its historical real GDP growth rate. If not, our investment yields will suffer.
Best Wishes.
Here's an instance which seems apropos: I have a dear friend whose politics are just the opposite of where I'm coming from. I once asked him: "If we can provide equitable healthcare for ALL (citizens,) why on earth shouldn't we DO it? There was silence from his end.
The Tea-nutters and the "GOP" want to stress personal responsibility. "Go out and get your OWN, like I had to do. Like we ALL had to do." That makes as much sense as the argument for requiring today's seminarians to study the biblical Greek and Hebrew. I had to do it, so YOU must, too. Despite the fact that there are professionals who are doing this for the rest of us. BTW, it's sad that even biblical translations into English these days are loaded with political agendas. Sucks.
Nothing is written in stone. A system could be devised providing for everyone, while still expecting people to do productive things to make their lives better. Mostly all of the available jobs are just a matter of renting your time to someone else. They provide no sense of satisfaction. I have come to see that for most folks, that's alright with them...
Right now, the way things are designed, we need better than 1% . But it doesn't have to be that way.
If we had ginormous infrastructure, tech and education investment, and further stimulus and poor/unemployment-assistance programs, borrowing extensively for them at these crazy low rates, well, growth would be significantly enhanced and nowhere near 1%. My spending is your income, your spending is my income. Now's the time. But never gonna happen.
You noted: "I fear we have wandered far from the theme of Catch22's original post."
Wandering was expected and welcomed. The subject line invites opinions of and for "cause and effect". It goes without saying; that this subject has a very broad spectrum of conditions and circumstances.
Not unlike we investors, economics and society; are still subject to trail and error via theory and practice. Back testing the end results may be the only valid indicator.
Without any doubt, the entire area(s) that have been discussed are very complex.
Regards,
Catch